FOREX-Yen weakens as BOJ tweaks monetary policy, euro outperforms

LONDON, Feb 18 (Reuters) - The yen fell to its lowest point
in nearly three weeks against the dollar and the euro on
Tuesday, after the Bank of Japan held policy steady, as
expected, and extended a special lending programme to support
the economy.

In an attempt to get Japanese banks to lend more, the BOJ
decided to extend three special loan facilities by one year. It
also raised the maximum amount of the loans and said financial
institutions would be able to borrow funds at a fixed rate of
0.1 percent over 4 years instead of 1-3 years at present.

The measures were seen as an inclination to ease monetary
policy and sent Japanese stocks higher and the yen lower. BOJ
chief Haruhiko Kuroda said the economy was moving in line with
the central bank's assessment, suggesting no further easing
steps were likely in the near term.

The Nikkei stock average ended 3.1 percent higher,
pushing the yen lower. The dollar was up 0.55 percent at 102.50
yen, having hit a February high of 102.745, while the
euro was up 0.7 percent at 140.70.

"The extension of the loan schemes both in size and lifespan
are seen as particularly beneficial to the financial sector,
helping the Nikkei to end up and reverse the recent dollar/yen
bear trend," said Tom Levinson, currency strategist at ING. He
added that 102.85/95 yen resistance should hold for now.

Still, some market participants used the BOJ's announcement
as an excuse to buy back dollars after the U.S. currency's
recent decline. The latest easing by the BOJ comes nearly a year
after it unleashed a massive bond-buying programme aimed at
getting the economy out of years of deflation.

"The accelerated yen sell-off in part reflects reinforced
investor expectations that the BoJ may deliver more significant
monetary easing later this year," said Lee Hardman, currency
analyst at Bank of Tokyo Mitsubishi UFJ.

EURO ADVANCES ACROSS THE BOARD

The highlight of the European session was the euro hitting a
five-week high against the Swedish crown of 8.9180
crowns after consumer prices in Sweden fell more than expected
in January and revived talk of an interest rate cut.

The euro also rose against the British pound to
trade at 82.25 pence after softer-than-expected UK inflation
data. The single currency's gains across a host of currencies
propped it up against the U.S. dollar, too.

The euro rose to $1.37345, not far from its Jan. 24.
high of $1.3740 which for now was also acting as a key
resistance. The euro barely reacted to a mixed German ZEW
survey.

The Australian dollar slipped from a one-month high
of $0.9079 to trade lower on the day at $0.9020. It eased after
China's central bank drained funds from the market and signalled
a continuation of its tight liquidity policy aimed at managing a
slowdown in the world's second-largest economy.

The Aussie is often used as a more liquid proxy to
investments in China.

Earlier, in minutes released on Tuesday of the Reserve Bank
of Australia's Feb. 4 meeting, when the RBA surprised some by
dropping its bias to ease further, the central bank noted that a
lower exchange rate would support growth.